Global oil prices could reach a “stratospheric” $380 a barrel if US and European penalties prompt Russia to inflict retaliatory crude output cuts, JPMorgan Chase analysts warned.
The Group of Seven leading industrial nations are working out a complicated mechanism to cap the price fetched by Russian oil in an attempt to tighten the screws on President Vladimir Putin amid Russia’s invasion of Ukraine.
The Group of Seven (G7) leaders recently discussed a plan to cap the price of Russian oil in order to put pressure on Moscow, which is benefiting from rising energy prices, and cut off its sources of funding for the invasion of Ukraine, which prompted the note.
A price exception could work through a mechanism to restrict or ban insurance or financing for Russian oil shipments above a certain amount. It could prevent spillover effects to low-income countries that are struggling with high food and energy costs.
JP Morgan analyst Natasha Kaneva said that Russia cutting production by 3 million barrels a day would push global prices to $190 per barrel. And the worst-case scenario, she added, would be if Moscow cut 5 million barrels per day, which could send the price to $380.
Since the start of the Ukraine conflict on Feb. 24, Western nations have hit Russia with punishing sanctions. However, Russia supplies much of Europe with oil and natural gas. The United States, meanwhile, has blocked all Russian oil exports since March.
JP Morgan’s analysts added that if the West continues to target Russia’s oil industry, the Kremlin may not play along.
“The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports,” the note said, according to Bloomberg.
Data from AAA shows that the nationwide average for a gallon of regular gas currently is hovering around $4.81 as of Sunday, a slight decline of about 10 cents from the previous week.
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